Johnson v Canterbury/Westland Standards Committee 3
| Jurisdiction | New Zealand |
| Judge | Van Bohemen J |
| Judgment Date | 28 March 2019 |
| Neutral Citation | [2019] NZHC 619 |
| Court | High Court |
| Docket Number | CIV 2018-404-000533 |
| Date | 28 March 2019 |
[2019] NZHC 619
CIV 2018-404-000533
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA
TĀMAKI MAKAURAU ROHE
Law Practitioners — high end negligence — wilful and reckless breaches — misconduct — Lawyers and Conveyancers Act (Trust Account) Regulations 2008 — Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008
P J Napier & N Pye for Appellant
S Waalkens & M Mortimer for Respondent
JUDGMENT OF Van Bohemen J
This judgment was delivered by me on 28 March 2019 at 2.30pm Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
| [Para No] | |
| Introduction | 1 |
| Relevant background | 3 |
| Complaint to Law Society and Law Society investigations | 17 |
| Charges against Mr Johnson | 20 |
| Nature of appeal | 23 |
| Tribunal's decision on Charge 1 | 25 |
| The scope of the retainer | 26 |
| Grounds of appeal on Charge 1 | 42 |
| Analysis on Charge 1 | 43 |
| No duty to give advice as to trustees' duties | 46 |
| Preferring expert evidence of Mr Eades to that of Mr Haynes | 50 |
| Failure to follow Bartle | 51 |
| Rule 3 of the Conduct and Client Care Rules | 60 |
| Finding that Mr Johnson was guilty of high end negligence | 63 |
| Appeal on Charges 2 and 3 | 72 |
| Scope of appeal on Charges 2 and 3 | 78 |
| What constitutes misconduct? | 79 |
| Appeal against penalty | 88 |
| Result | 101 |
Ronald Bruce Johnson has appealed two decisions of the New Zealand Lawyers and Conveyancers Disciplinary Tribunal in which the Tribunal: 1
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(a) Found Mr Johnson guilty of:
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(i) Negligence in his professional capacity of such a degree as to bring the profession into disrepute; and
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(ii) Two counts of misconduct relating to reckless breaches of the Lawyers and Conveyancers Act (Trust Account) Regulations 2008 (Trust Account Regulations) in one case, and wilful and reckless breach of the Trust Account Regulations in the other; and
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(b) Censured Mr Johnson, suspended him from practice as a barrister and solicitor for a period of three months, and ordered that he pay costs.
Mr Johnson says the Tribunal erred:
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(a) In finding that he was guilty of high end negligence;
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(b) In assessing the two sets of breaches of the Trust Account Regulations as constituting misconduct;
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(c) In ordering that he be suspended from practice as a barrister and solicitor for a period of three months.
The Hunt Family Trust (Trust) was established by deed on 1 July 2009. The Settlor was Mrs Ingalavoa Margaret Hunt, a Samoan woman in her mid-70s at the time of the Trust's establishment. Mrs Hunt, who has since died, had a limited command
of English. The Discretionary Beneficiaries were Mrs Hunt, the Final Beneficiaries, and any issue of the Final Beneficiaries. The Final Beneficiaries were Mrs Hunt's four children: Deborah Cecilia Holtom, Maurice Peter Hunt, Matthew Neil Hunt (also known as Matthew Perrott-Hunt), and Hans Andrew HuntThe trustees were Mrs Hunt, Mrs Holtom, and Ed Johnston & Co Trustees Ltd, a trustee company established by Mr Edward (Ed) Johnston, the Hunt family's solicitor who advised the family on the establishment of the Trust.
Although the Trust Deed did not specify that the Trust had any particular purpose, the evidence of the Hunt family members was that the purpose was to provide a source of funds to enable Mrs Hunt to travel to Samoa and Australia to visit family. At the Trust's establishment, the trustees' intention was to transfer to the Trust an unencumbered property at 17 Home Street, Grey Lynn (the Grey Lynn property) that was owned by Mrs Hunt and was her residence.
Neither Mrs Holtom nor Mrs Hunt went to Mr Ed Johnston's offices to sign the Trust Deed; the evidence suggests they may have sighted and signed only the signature page brought to them by Mr Maurice Hunt, who had an established relationship with Mr Ed Johnston.
On 2 September 2009, Mr Ed Johnston asked Mr Johnson, then a salaried partner in a law firm in West Auckland, to act for Trust in relation to the purchase of 31 Edwin Freeman Place, a property in Ranui (the Ranui property).
The referral was made by email sent at 3.59pm on 2 September 2009 by Mr Ed Johnston's assistant to Mr Johnson. The email stated:
I would be pleased if you would act for “The Hunt Family Trust” in relation to the purchase of 31 Edwin Freeman Place.
I confirm the agreement is not binding on your client until you are happy with the content of the agreement.
Attached to the email was a copy of the agreement for sale and purchase for the Ranui property and a copy of the trust deed for the Trust. Although the email did not state the reason for the referral, Mr Johnson was aware that Mr Ed Johnston had a conflict of interest because Mr Ed Johnston was the owner and vendor of the Ranui property, and Mr Ed Johnston's Trustee company was a trustee of the Trust, as was apparent from the documents sent with the email.
The agreement for sale and purchase stated that the purchase price for the Ranui property was $300,000 and that the agreement was subject to finance being obtained by the purchaser at the purchaser's lending institution of choice in an amount required by the purchaser to complete the purchase.
Later the same day, 2 September 2009, four members of the Hunt family — Mrs Hunt, Mrs Holtom, Mr Perrott-Hunt and Mr Maurice Hunt — called on Mr Johnson. The meeting between the family members and Mr Johnson lasted approximately 20 minutes.
Mrs Holtom and the other family members say they had expected Mr Ed Johnston to be at the meeting and were surprised he was not there. Mrs Hunt had expected that Mr Ed Johnston, whom she had not met during the establishment of the Trust, would explain the nature of the Trust to her and the other family members. Mrs Holtom expressed surprise at the proposed purchase of the Ranui property which she said she had not known of before the meeting. However, after expressing her discomfort at the proposed purchase, Mrs Holtom played no further part in the meeting. It appears Mrs Hunt did not speak at the meeting.
There is a conflict in the evidence over whether the agreement for sale and purchase had already been signed before the meeting, as Mr Johnson said, or whether it was signed at the meeting, as Ms Holtom and Mr Perrott Hunt said. The Tribunal held that it was unable to resolve this conflict but did not consider it necessary to do so. In any event, it is not in dispute that by the end of the meeting the agreement was signed — by Mrs Hunt and Mrs Holtom, whose signatures as trustees were necessary, and also by Mr Maurice Hunt and Mr Perrott-Hunt.
On 24 September 2009, the ASB Bank wrote to Mr Johnson to confirm that the bank had agreed to provide finance of $400,000 to be secured by first mortgages over the Ranui property and over the Grey Lynn property.
No independent valuation of the Ranui property was obtained but the evidence was that the property's rateable value at the time was $297,000, that is $3,000 less than the purchase price.
The Ranui property was sold by the Trust in January 2011 for $300,000, that is, the same price paid by the Trust for its purchase.
In March 2015, Mr Perrott-Hunt complained to the New Zealand Law Society about Mr Johnson's role in relation to a number of transactions entered into by the Trust on the advice of Mr Ed Johnston who by then had been struck off the roll of Barristers and Solicitors. Mr Perrott-Hunt said that Mr Ed Johnston had used the Trust as a vehicle to further his own interests at the expense of the trustees and of Mrs Hunt as settlor of the Trust, and that in his view Mr Johnson had facilitated this or was reckless to the truth of Mr Ed Johnston's conduct. Mr Perrott-Hunt did not identify the initial purchase of the Ranui property as one of the transactions that formed the basis of the complaint.
On 2 July 2015, the Law Society appointed Mr Graham Bentley to investigate Mr Perrott-Hunt's complaint. In his report dated 20 January 2016, Mr Bentley said that, considering that Mr Johnson was aware of Mr Ed Johnston's ownership of the Ranui property, the transaction for the Trust's acquisition of the property should have been scrutinised as to price and financial viability and that Mr Johnson may have breached Rule 6 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (Conduct and Client Care Rules).
Between 18 February 2016 and 10 March 2016, Mr King Yiu Michael Koo, an Inspector of the Law Society Inspectorate, undertook a general review of the trust account of Mr Johnson who by this stage had established his own law firm, Central Park Legal Ltd. In his report, Mr Koo said he found significant areas of non-compliance with the Lawyers and Conveyancers Act and the Trust Account Regulations.
On 23 March 2017, the Canterbury Westland Standards Committee No 3 of the Law Society brought three charges against Mr Johnson:
Charge 1:
Misconduct within the meaning of s 7(1)(a)(ii) of the Lawyers and Conveyancers Act in that Mr Johnson wilfully or recklessly contravened r 3 of the Conduct and Client Rules when giving advice to the trustees of the Trust about the purchase of the Ranui property.
Or alternatively, negligence or incompetence in Mr Johnson's professional capacity, and that negligence or incompetence was of such a degree or so frequent as to reflect on his fitness to practise or as to bring the profession into disrepute under s 241(c) of the Lawyers and Conveyancers Act.
Or alternatively, unsatisfactory conduct within the...
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